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Ask the Experts | How to Calculate Sales Commission

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Ask the Experts | How to Calculate Sales Commission

Question: What numbers should we use to calculate sales commission?

Drew Cameron; President, HVAC Sellutions & Energy Design Systems, Inc.:

I get asked about sales compensation quite a bit, and the question the way it’s asked is a little thin in structure for me to be able to really understand what the questioner is asking, so I’ll interpret it to the best of my ability.

Number one, “what number should we use when calculating sales commission?” Well that all depends on what the compensation program is. Meaning, if you’re paying a draw or a salary or something of that nature – and I’m assuming we’re talking residential replacement as well – that’s going to factor into the answer. I’m not a fan of paying a salary, I’m OK with a draw that you settle up against commissions at the end of the month, and I like the draws to go away as people earn to keep them hungry.

So if we were paying 100% straight commission to a salesperson, what numbers should we use? In my humble opinion, calculate using the revenue, with no discount to that for financing costs, rebate costs or technician or employee spiff costs. I don’t think that a salesperson’s job gets any less hard if financing is involved, rebates are involved or technician spiffs are involved. Those are costs of doing business in my opinion, those should be covered as part of overhead as a cost of doing business, and should be spread out among the whole business, not just on that particular job or that particular month, and that way you’re covering all the costs of doing business in your overhead. So now you can use revenue as the topline calculator, number one.

Number two is that when a salesperson sells something you want them to be able to understand what it is they make. It keeps them hungry, it keeps them motivated, that’s what drives a true professional salesperson. It’s not just the “thrill of the kills” as they say, but understanding what they make for doing that. Cause everybody else understands, “If I work an hour, I make X amount of wage.” A salesperson says, you know, “What do I get paid if I sell something?” If you have some convoluted formula that’s based off of net profit or gross profit or something like that, that’s going to make it more of a challenge.

Now, the only thing I will deduct from the calculation is, during certain times of the year, shoulder seasons, when I get really aggressive with my marketing campaigns – such as, Gary has, I think, a sweet 16 program – and that’s vvery aggressive; there are some deep discounts, and many incentives includes for purhcases during a certain time period to drive sales. And that’s where I say, if I don’t do the marketing – and I’m paying a 10% commission, say, on revenue – and I don’t do the marketing, odds are I’m not going to have a heck of a lot of leads. So it costs me a lot in terms of marketing costs as well as incentive costs, to do that type of program, and therefore the way I look at that is, well, if I don’t have any leads, 10% of nothing is nothing. So I’d rather do a marketing piece where, yes, we cut into profit, but there’s also what I call a commission share – I don’t like to call it a deduction, so it’s a commission share going into the shoulder season campaigns.

So all that being said, let me just kind of give you some tiers that I use – have used – at my own company and that I use with my clients. I recommend paying a 5-10% commission for equipment sales, and that’s basically tiered at the upper levels. Obviously you get paid more for selling a higher-efficiency system than you do for a lower-efficiency, entry-level type system. That’s for HVAC.

I like to pay 10-15% on indoor air quality products and services, such as duct cleaning, humidifiers, air cleaners and whatnot. You know, 15% if they’re sold by themselves – pay a little more because obviously a lower average ticket there. 10% if sold with the job. Same if you also do home performance, as well as duct modification – if sold with the equipment, 10%, if sold by themselves, 15%.

Have a lot of clients that do whole home generators – so we pay 10% for generators, we pay 10% for smart home solutions that are included with the system, 15% if sold by themselves. 10% for accessories like humidifiers, air cleaners, UV lights, things of that nature, that are sold with an install; 15% if sold alone. And then I like to pay a 3-5% kicker for self-generated leads – again, on top of the regular commission.

Obviously there are bonuses for performance over and above that, but those are the numbers I would use based on the way I interpreted the question for calculating commission.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

3 Keys to Success for Techs | Clip of the Week

There are three key things that contribute to success or failure — and you have varying levels of influence over them.

In this week’s clip from Cracking the Code, Gary Elekes explains those three things you need to be a successful tech — and they’re all things you can work on immediately.

Watch the clip below, and visit EGIA.org/Show to watch the full show, before it goes in the members-only archive on September 24.

Ask the Experts | Online Reputation Mgmt & Tech Behavior

Question: How can I use my online reputation management process to drive behaviors for my service techs? Any promotions or spiffs you might suggest for that process would be helpful.

Gary Elekes; Founder, EPC Training:

That’s a great question. There are so many companies out there that struggle with getting the service techs to understand how important it is to get the review system in front of the client, and basically communicate enough with the client that they will actually write that review.

So somewhat depends on which technology you’re using, there’s a variety of them out there. Usually Wally or Drew will give a full disclosure on this: Obviously I own a company that does this, so I think you have to temper whatever I have to say with the idea that I’m in that space. But just as a generic answer to that question, if you’re using somebody like ReviewBuzz or RevuKangaroo, or any of those companies that are on EGIA Contractor Marketplace, the technician has to understand the platform.

I think the one thing that we’ve seen over the years is, the technician training and communication that Wally just talked about, and just the whole engagement process with the technician, to really train them on their comfort levels with respect to whatever technology you’re using. So if we’re presenting an iPad review system and we’re asking the client to engage, if the technician isn’t comfortable and doesn’t understand it and hasn’t roleplayed and practiced it, it’s almost 100% that they probably won’t execute that as well as the company owner or service management function wants it to be done.

So that’s a problem, and it needs to be dealt with, and there’s no other way to do it than just coaching and training and sitting down and doing the day-to-day details and what I consider to be hand-to-hand combat work. It’s training, it’s discipline, it’s getting in the gym and moving the rock. You’re not going to see any results unless you do that.

The second part of that is, I think, we have to make sure that the consumer understands the nature of what we’re asking them to do, and that’s also a technician training. You can work through some collateral information. Certainly you can create some videos that are supported on an iPad or an Android device that allow the client to be able to watch a short video that explains exactly what’s going on, and the importance of what they’re contributing to the overall success of the company — if we did a good job for you, how important it is for that technician to be part of that.

And then to be direct at the heart of this question, “How do I get the technicians’ behaviors changed, do I create some incentives?” was part of this program. The answer is yeah, I think you want to track this. It’s the same old, same old: What gets measured gets done. If we don’t track the behavior patterns, then it’s not likely that we can coach.

So we should set some standards, we should set some minimum requirements, some thresholds for underperformance. So that if technician A, we’ll call that technician Wally, is performing at 70% review success, and technician B, we’ll call that technician Gary, is performing at 22% review success – we need a minimum threshold. Let’s call that 30% of our clients producing reviews. So Wally would be eligible for the bonus, and Gary would be eligible for a sit-down with the service manager and have a little conversation about, “Hey what do we need to do to help you with your performance? How do we get you in a position to understand how to do this?”

So as long as you have the training and the tools and the resources to do that, there’s no reason why technician Gary shouldn’t be able to do that, and then you mitigate those conversations with ride-alongs. You start observing and putting yourself in a position, as the service management function, to understand why technician Gary isn’t getting it done. It’s almost always a lack of confidence and communication skills and that’s something that you can coach and train around. Certainly that’s hard work, but it’s something that will benefit the company, the overall brand. We know full well that money is a short term motivating factor.

Meaning if I create a bonus plan, and I give Wally $50 for every review, as an example, while Gary’s performance might improve from 22% to 28% or 30% short term, if I don’t change Gary’s skill sets, and I don’t put him in a position to understand exactly what’s necessary to be successful, then ultimately Gary will fall back as soon as that behavior pattern takes over again. In other words, the behavior itself is going to win versus the ability to promote, incent or be able to create any kind of economic incentive.

So the only way we can really change the behavior pattern is to get at the thinking pattern, really work on the belief systems and make people understand why it’s important, sort of the Simon Sinek routine. And then understand how to set expectations and measure those expectations, and then work with people’s attitudes. That’s how you correct behavior patterns. If we don’t do it that way, it’ll all be short term. So obviously the technology has to be easy, it has to be trained on, it has to be user-friendly for the technician as well as the consumer. And I think those are questions that I would ask if I was looking, as a broad conversation, “How are we doing as a company? Do I have peak performers and what are they doing successfully, what are the differences between that individual and the average or below-average technicians?” As noted in the example, technician Gary isn’t getting it done, is he just not capable? So we would look at all of that.

And then the final part of that is, yeah, I probably would have incentives and tracking systems and celebrate success. I think you can point out people’s flaws very easily by just using tracking and tools to present. I don’t have to call out Gary publicly. Gary’s going to see the chart each day when we come into the technician training platform if we’re tracking that. He will clearly know that he’s not performing, if the standard of excellence is 30%. That can be done in a lot of different ways, so we typically just use color-charts and thresholds. There’s been a movement in our company to move to smiley faces and then a straight-face if you’re right on goal, and then a frown if you’re not. So we don’t have to say anything, you can just look at the smiley face if you’re doing well, or see a frown and know that you’re not.
Wally I’ll pass that on to you and you can make any comments.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

The Sales Secret Weapon | Podcast

In the latest episode of the Contractor Coffee Club podcast, Mark Matteson taps his decades of HVAC sales experience to lay out some simple rules for sales success, in the latest episode of the acclaimed podcast. He explains the secret weapon that’s more valuable than anything else when it comes to closing sales and satisfying customers – and it’s a tool you already have.

What If We Train Techs & They Leave? | Clip of the Week

Ongoing training is vital to the success of your company. But what if you invest in training a new employee, only to see them take those skills and experience to a new employer?

In this week’s clip from Cracking the Code, Weldon Long explains how the abundance mentality, confidence and company culture can prevent that from ever becoming an issue.

Watch the clip below, and visit EGIA.org/Show to watch the full show, before it goes in the members-only archive on September 17.

Snapshot Survey Results | On After-Hours Service Calls

In the August 2018 Snapshot Survey, we asked contractors all about after-hours service calls. Here’s one survey question and its results from the summary report, which is now available in its entirety to EGIA members.

Question: Does your company answer after-hours service calls?

First and foremost, we wanted to know how many companies field and respond to after-hours services calls, and it turns out an overwhelming 96% keep employees handy throughout the night.

While companies operate on a standard schedule, equipment, of course, isn’t always polite enough to only breakdown during normal business hours. If and how a company offers after-hours service can be a complex problem to address, but the merits of keeping people available round-the-clock are all too apparent.

A customer knowing that a problem that arises at any time, day or night, will be addressed in a timely manner may be the difference between them picking your company or your competitor. And as the 96% to 4% split shows, your competitor probably answers after-hours service calls.

Login to access the full research report on after-hours service calls.

For a deep dive into service management, and to access training materials, recommendations and education pieces, visit the Contracting Best Practices Library at the EGIA Member Dashboard.

EGIA Snapshot Survey - What percent of contracting companies answer and respond to after-hours service calls?

Ask the Experts | Establishing Install Price?

Question: What is the best way to assemble install pricing?

Gary Elekes; Founder, EPC Training:

Lots of variety on that one. You’ll get a difference of opinion depending on the application we’re doing business with, so I would qualify the answer to this question with, “it depends on the market area you’re working in and the applications you’re working with.”

So for example Miami, we’re going to be doing pretty much straight cooling only, so that would be a very different application than, say, the Northeast where we might be doing hydronics and we might be doing some plumbing incorporation with heating and air conditioning, home comfort, those sorts of things.

So application matters and if we distilled that down to, OK, we’re going to take the 80% of the United States and Canadian geographic zones where applications are pretty similar – such as split system air conditioners, gas furnaces, split system heat pumps, maybe package units – those types of systems that you would consider to be common.

So things like VRF and some of the mini-splits and ductless, we may not include those in the application, although we can use the same systems, but the number will be a little different; the times and the tasks in the installations will be a little different. But the very first thing I do is I always define the applications and say, “OK, what are my marketplace applications? What is my 80/20 principle?”

The second thing that I do is I look at the actual task times that relate to those principles. So out on the EGIA website I even have a spreadsheet where those task times are already broken down. They’re not fully organized around every single individual business, but they’re generic. So what I would do with the men, if I was going to take a company in Chicago or Sacramento or maybe Orange County, is I would sit down with my men and I would say, “Here’s the basic list of what I have, let’s talk about what we’re doing and how we’re doing it.”

What do we do on the job on the application? And how much time does it take? So you create the task times around that and that gives you your labor component. So labor is going to be one area that we’re going to deal with; obviously we have material, we have equipment, you might have subcontracts. In Phoenix, we use a lot of cranes to do equipment set on roofs that are package units. We can do three in a day as long as the crane is available; if the crane isn’t available, that changes things.

So this is just an example where you look at the application, you look at the tasks, and you organize all of the tasks that go into that particular structure and you cost it. Then the next layer of that is, well, how do I want to actually price the work? Many companies will use markup, multiplier and divisor. As you know, I’m not a big fan of that for the obvious reason, which is that it doesn’t deal with labor any differently than it does material. And so a high-material, low-labor job is a very good job for us. A high-labor, low-material job is a more difficult job because it tends to increase the cost of overhead. So because of that, the idea that those – the markup, multiplier and divisor method – treat them equally as if there are no differences; that’s not the best methodology. It’s definitely the simplest methodology, it’ll get you to a price point, but there are legitimately probably four or five good reasons not to do it.

So if that’s where you are, I’d urge you to look at something like gross profit dollars by day – either by crew or by man – and that is just as simple as organizing, “Hey, what do I want my gross profit to be on this particular product and application?” And assign that number and make sure that that covers up the overhead per day per crew, so that’s a step in the process as well.

And then you have to go behind that as well, meaning that now that you have an individual strategy, and you’ve priced a particular job, I think it’s important for us to understand the retail, versus just contracting mindset. You want a pricing strategy, so you want positioning, and you want to be able to understand the psychology of the high-end and the low-end, and how consumers perceive high-end and low-end products and services, and they tend to buy in the middle. And we’ve talked about this on a previous call – 83% of the consuming public will choose the middle position, and they do that because they feel that’s the best place for the price-value relationship. We talk about that all the time – perceived value is equal to perceived benefits divided by the price. Well the perceived benefits in the center position tend to be the most chosen one – 83% of the time – so as you’re breaking down your cost, you’re breaking down your applications, you’re breaking down your prices, and you choose your strategy, that next step is to organize into a positioning strategy that allows you as a company to promote your sweet spot.

For us that might be 16 SEER, 2-stage, variable-speed technology, maybe with a variable-speed air-handling system, a nice wifi stat, maybe one or two indoor air quality products of choice. So we’ll give the customer five options, they can choose one or two, so they’re really building their own platform, and obviously we’ll walk them through those choices. So that price positioning for us, that would be the center position, that’s the one we would treat with the most benefits, the most value, the price-value relationship would be at the best possible solution for the consuming public. That doesn’t mean we’re selling exclusively that, it just means we know that’s the one our marketplace will most likely benefit from the most, so we’ll structure the positioning strategy to highlight that.

So just imagine you were looking at a price page or a purchase page and you had a giant highlighter around that, that’s kind of the idea we want you to see when we’re creating credibility, likeability and so forth.
And then the final part of that has to be that you understand – with respect to brand names, brand strategy, your brand promise, your warranties, your guarantees – the things that are necessary for you as a retailer to be strong and to be able to offer a client something that’s powerful and unique in the marketplace, that sets you apart from the everyday competition.

“I’m going to do it as a quality installation” is a not a unique selling position; it’s not a brand promise. It’s not strong enough; it doesn’t draw the attention to the consumer. And frankly everyone can say that, so it doesn’t represent something that makes you unique.

Giving a 20-year parts and labor warranty – I’m not advocating you do that, I’m just giving you an extreme example – if I said, “I’m going to give you a 20-year parts and labor warranty on this particular product and service, and the other products and services carry a 10-year warranty,” that makes you pay attention like it was highlighted with a bright yellow marker, so you would look at that and say, “Wow, that looks like a pretty good warranty, tell me more about that.”

So the goal in setting up the pricing, the positioning, and the overall strategy, is to make sure that you have some brand promises, some warranties, guarantees, extended warranties, additional products and services, that all wrap themselves around those types of structures.

So start with the idea of applications, then move into task times, then move into a pricing strategy, then move into the idea of sales process, guarantees and warranties and I think that’s all pretty much in the pricing models if you look at the Best Practices site [on EGIA.org].

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

Make the Phone Ring in September | Clip of the Week

September’s here, and the busy season is ending. So how can you ensure the phone keeps ringing now that business is cooling off?

Weldon Long offers some marketing and sales strategy to remove the seasonality from your business, this week’s clip from Cracking the Code.

Watch the clip below, and visit EGIA.org/Show to watch the full show, before it goes in the members-only archive on September 10.

Ask the Experts | Good Timekeeping Apps?

Question: What timekeeping apps do you recommend?

Drew Cameron; President, HVAC Sellutions & Energy Design Systems, Inc.:

That’s an interesting question. This is a new one that we haven’t had, ever, that I’m aware of, anyway. And so I guess I’d want to better understand, what is the questioner asking about? Are we talking about keeping time of our coworkers – meaning people who come to the office and have to punch a clock? Are we talking about our field personnel? Not having that understanding here, I’ll just throw out a couple ideas based on some assumptions.

Number one, I don’t ever like to reinvent the wheel, and I don’t like to double entry if I can avoid it. So I believe — and Gary can probably talk about this a little more intelligently than I can because I know his awareness of software is probably at a higher level than mine – the software you use to run your business, if you’re using some type of service management, service dispatch software, there’s some kind of timekeeping element in those programs. So some listeners I know are in Quickbooks for their accounting, and then they’ve got some type of folded-on service management; that service management software should have that. I believe Quickbooks has a payroll function as well that will allow you to track time.

So if you can do everything within the system that you’re already operating in, I’m going to recommend that you work in that. I know software programs like Aptora and SuccessWare21 and Construction Monkey, those types of programs have those timekeeping functions.

And then if you’re looking at some other programs or apps that are already out there, that might tie into Outlook, or if you just need to keep track of time for some reason – I’m not really sure why you need to keep track separately from your core function – if you go to Kalmstrom.com, that interfaces with Outlook and you can have a timekeeping function there. Toggl.com is another one. Clockshark. TSheets –TSheets is owned by and interfaces with Quickbooks, so if Quickbooks’ internal payroll function doesn’t give you what you need, TSheets is probably an enhancement that would work for you there.

Swipeclock.com is another one, and then there’s all kinds of project management software. Those are the ones that I’ve come across in my career. You could probably Google things, or look in the Apple or Android app store and find something if you’re looking for something specifically for an app.

But without having a real clear understanding as to what the questioner’s looking for and trying to accomplish, it’s hard to know where to go with that. So with that thought, I’ll throw it over to Gary, because I’m sure he’s got some good insights on that.

This is the weekly Ask the Experts free excerpt. To listen to all of this week’s calls, or to see the schedule and register for future calls, click here.

Converting More Website Visitors | Podcast

95% of visitors are leaving contractors’ websites without doing anything. They don’t take action. They don’t book a call. That’s not only a wasted opportunity, but potentially mass amounts of wasted marketing dollars.

In the latest episode of Contractor Coffee Club, Mark Matteson welcomes Trevor Flannigan, COO of HomeServiceChats, who talks about strategies for converting more website visitors and maximizing marketing spend.